Suppose an unlevered firm issues $1000 in debt at a cost of debt of 10%. If the corporate tax rate is 20%, what is the change in
1 answer:
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Answer:
ATTACHED file with the bonds schedule
Explanation:
First, we solve for the proceed from the issuance:
PV of the coupon:
C 25,000.000 (500,000 x 10%/2)
time 7 (3 and a half year x 2 payment per year)
rate 0.06 (12% annual / 2)
PV $139,559.5360
PV of maturity:
Maturity 500,000.00
time 7.00
rate 0.06
PV 332,528.56
PV c $139,559.5360
PV m $332,528.5568
Total $472,088.0928
Then we construct the bonds schedule as follows:
procceds 472,088
face value 500,000
discount on bonds payable -27,912
bond rate 0.05
market rate 0.06
ionterest expense: carrying value times market rate:
472,088 x 0.06 = 28,325.29
cash outlay 25,000
amortization 3,325.29
carrying value after first payment:
472,088 + 3,325.29 = 475,413.29
and the process repeat for all periods.
Answer:
$3,000 and 7,000
Explanation:
Please find attached the table used in answering this question
Equilibrium price is the price at which quantity demand equal quantity supplied.
Equilibrium quantity is the quantity that equates quantity demand with quantity supplied.
Above equilibrium price there is a surplus - quantity supplied exceeds quantity demanded. As a result of the surplus, price would fall until equilibrium is reached.
Below equilibrium price there is a shortage - quantity demanded exceeds quantity supplied. As a result of the shortage, price would rise until equilibrium is reached
